Courts in Ontario start to consider force majeure clauses

Durham Sports Barn Inc. Bankruptcy Proposal, 2020 CarswellOnt 14288

In the recent case of Durham Sports Barn Inc. Bankruptcy Proposal ("Durham Sports"), the Ontario Superior Court of Justice (the "Court") ruled in favour of the landlord, finding the tenant was obligated to pay full rent during Ontario's provincial government's shutdown of non-essential businesses and the restricted re-opening period, which followed. For the purpose of this analysis, we will be focussing on the Court's consideration of the force majeure clause specifically.

A force majeure provision relieves the parties to the contract from performing their obligations should certain circumstance beyond their control arise rendering the performance of such obligations impossible to perform. Depending on how the provision is drafted, the COVID-19 pandemic may qualify as a force majeure event giving rise to relief of said contracted obligations.

In Durham Sports, the underlying commercial lease included a force majeure clause (the clause was not disclosed in the decision), which the Court held was effective in shielding the landlord from being required to provide the tenant with quiet enjoyment of the leased property but did not relieve the tenant from its rent payment obligations. Furthermore, the quiet enjoyment clause in the commercial lease provided that the landlord's obligation to provide quiet enjoyment hinged on the tenant paying rent. Thus, in this case, where the tenant was not paying rent, the landlord was under no obligation to provide such quiet enjoyment.

Interpreting the force majeure clause this way, the Court did not rely on the decision from the courts in Quebec; in particular, the decision in Hengyun International Investment Commerce Inc. c. 9368-7614 Qué("Hengyun")^[1], where the court had relieved the commercial tenant from the obligation to pay rent during the shutdown period imposed by Quebec's provincial government because of the pandemic. In Hengyun, the court held the force majeure clause in the lease did not apply and, should it apply, the clause could only limit the landlord's obligation to provide peaceful enjoyment, rather than exclude the obligation entirely.

Durham Sports has provided some clarity as to how the force majeure clause could be interpreted by the courts in the common-law jurisdictions. However, the jurisprudence is expected to continue to develop for the next few years as a wave of pandemic fueled cases reach the courts.

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